Originally posted on 2020-08-30
No talk about a large scale project is complete without talking about money and financing. When we first bought the property we talked about the headache of trying to obtain a mortgage with both of us technically unemployed. Well, now we both are employed, but trying to get financing to tear down the house on the property to build a new one has it’s own set of challenges.
Traditional banks mortgage houses, not the property
When we first decided that we wanted to knock down the whole thing instead of just part of it we, of course, first went to the bank that currently holds the mortgage and explained to them what we wanted to do. The response was not what we were hoping. They said they could give us a builder’s mortgage (which is what we were expecting) in which they would release funds to us after the work was done in various stages. This was fine as we have enough to do the first phase of the project, or at least we will by the time we’re ready to do it. What we didn’t expect was for them to tell us that in order to get this we had to completely pay off our current mortgage with them. We can’t afford to do this and do the project we wish to do. We tried to argue with the bank that the land the house sits on, regardless of the house, is worth almost double our current mortgage amount, but apparently, that doesn’t matter to them. As they explained it to us, they would not hold a mortgage on land only no matter the value. The land had to have a house on it. It also apparently didn’t matter that the plan is to tear down part of the house, build, then tear down the other part as the plan involves having no part of the original structure when we’re done. We looked into ideas of keeping part of the original structure, but it didn’t really work for what we want.
Plan Two: A Mortgage Broker
So we needed to look into different options for financing. We talked to a mortgage broker, which sounded promising, about obtaining financing. Our credit is good and the plan for the house would make it worth a lot more than we plan to spend on it since we are doing the work ourselves. Like with a traditional bank it would be a mortgage where the funds would be released to us in stages. We think we’ll be able to get financing this way, though we are still in the process of putting together everything the broker needs. We had to provide the plan and an estimate of what it would cost to build at retail prices for the items and as if we were paying someone else for the labor. We also had to provide all the normal documentation proving income and assets of value. The biggest problem with a broker that we’ve come across so far is that the interest rate that we can expect to pay going with a private lender is much higher than that of a traditional bank. This does make sense as the risk is higher, but it means we have to reevaluate if this is the best course of action. We are going ahead with the plan to tear down the house and start over as that is the best thing we can do, we just might take some time to see if other options we haven’t thought of yet are still out there.
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Huron The Lake 